Posted by: captainfalcon | February 23, 2011

The Presuppositions of the Knowledge Problem(s)

Aaron inspired me to think about the knowledge problem, which undergirds a great deal of contemporary free market thinking. The knowledge problem, it seems, has metastasized since “The Uses of Knowledge in Society” and now stands for two separate arguments against state action (no doubt expressed in various different flavors within the derivative literature). The reason it has metastasized is that “The Uses of Knowledge in Society” was so successful in (its original goal) persuading people that some kind of free market was a more efficient means of allocating resources – satisfying preferences expressible in the market – than state planning. (In other words, there is no longer a “need” for Hayek’s version of the knowledge problem, so it’s been tweaked to respond to new conditions.)

The first metastasization is that private actors have a comparative advantage over the state in how to efficiently satisfy preferences expressed in the market. Their local knowledge gives them a better sense of the cheapest means to the satisfaction of preferences, and the market gives them an accurate sense of market-preferences (this is an a priori truth) and also the power to actually satisfy them. In this respect, we should prefer private action to state action.

The second metastasization runs that because the state is (a) ignorant of the actual effects its actions will have and (b) extremely powerful, there’s a strong likelihood that it’s conduct will have calamitous effects. The same is not true about private actors primarily because they are not as powerful as the state, but also (possibly) because they are better able to predict the (more limited) effects of their actions. Therefore, we should prefer private action to state action.

Absent auxiliary premises, the first argument does not have the implication of a general skepticism of state power that libertarians sometimes suggest. The second problem also relies on some questionable presuppositions. Interestingly, both the auxiliary premises and questionable presuppositions are those you’d expect someone who is temperamentally libertarian to endorse. Likewise, you’d expect someone who is temperamentally a left-wing liberal to reject them. This all confirms, in my view, the illiberal notion (advanced by Geuss in, particularly, “Thucydides, Nietzsche and Williams,” “Liberalism and its Discontents,” and various essays in Politics and the Imagination) that there is no consensus in politics.

I. The First Metastasization

There are two problems with the first metastization. First, it proves too much. If we should prefer private action to state action because private firms have a comparative advantage in local knowledge compared to the state then we should only prefer some private action, viz. private action conducted by firms that truly are more local than the comparable agencies of the state. This suggests, in turn, a realm of state action: dismantling big firms.

The other problem is that it doesn’t prove enough. If successful, the first metastasization shows only that private firms are more efficient than the state at satisfying preferences expressed in the market. That is: they are instrumentally better positioned to allocate resources to those who are most willing to pay for them. But it is a long way from this conclusion to the view that we should be generally skeptical of state action. The necessary auxiliary premise is that the most desirable alternative, from the perspective of the state, is that the set of preferences expressed in the market be satisfied. This amounts to no more than that the state should never seek to actively adjust the social status quo – it should just get out of the way. It’s a libertarian premise, to be sure, but that’s just the issue – the first metastasization is question-begging. It should not move anybody who thinks that market preferences are normatively irrelevant (they don’t reflect what we really want) or underdeterminate (they reflect what some of us really want, but do not reflect the wants of those who are systematically disempowered).

Can the first metastasization be modified to support the conclusion that private firms are more efficient than the state at changing the scheme of social ends – market preferences and others – for the better? The “argument from ignorance” that private action is preferable to state action even when it comes to effecting social change (as opposed to distribution within a given market structure) has it that private firms have a comparative advantage (arising from localism) in knowledge of how to change the set of market-expressed preferences and non-market-expressed ends, not just a comparative advantage in how to efficiently satisfy preferences expressed on the market.

There are epistemic, motivational and causative problems with this reformulation that do not afflict the original.

Epistemically, knowledge of efficient resource allocation is easier to acquire than the sociological and psychological knowledge that’s a prerequisite to being able to reliably change preferences. It is, in Hayek’s terminology, “knowledge of the particular time and place,” as contrast with the socio-psychological knowledge that is more the domain of experts. As Hayek puts the distinction:

[T]he answer to our question will therefore largely turn on the relative importance of the different kinds of knowledge; those more likely to be at the disposal of particular individuals and those which we should with greater confidence expect to find in the possession of an authority made up of suitably chosen experts. If it is today so widely assumed that the latter will be in a better position, this is because one kind of knowledge, namely, scientific knowledge, occupies now so prominent a place in public imagination that we tend to forget that it is not the only kind that is relevant.

It may well be that even experts don’t have the scientific knowledge necessary to reliably adjust preferences. But this is an entirely separate debate uninformed by Hayek.

Second, even assuming that private, local firms have a comparative advantage in knowledge of how to change market-expressed preferences and non-market-expressed ends, there is no reason to assume that they will have the motivation to alter those ends. Hayek’s view about the comparative efficiency of the market (plausibly) presupposes the pervasiveness of the profit motive. In order to think that private firms will exploit their superior local knowledge for salutary socially transformative ends it must be assumed that they are motivated not by profits (which only motivate the satisfaction, not alteration, of market-expressed ends) but by an accurate sense of social justice. Here, too, a separate argument is required. (And quite implausible: most private actors who go in for changing social ends are motivated by benevolence? Really?)

Finally, the tweaked knowledge problem gives us no reason to think that private firms will have the power needed to effect social change. In the original formulation, the market gives private firms the power to satisfy preferences. But there’s no reason to think the power the market supplies – which just is the power to satisfy market-expressed preferences – can be reliably harnessed to alter them. Why think that market-expressed preferences (and others) can be systematically non-coercively overhauled (or overridden)?

II. The Second Metastasization

The second metastasization has nothing to do with Hayek’s original knowledge problem other than that it uses a conception of “ignorance.” It thus requires separate reasons for thinking that the state is unable to reliably effect specific social change, and also reason to think that the social change it (inadvertently) brings about as the result of state action is likely to be worse than the social status quo ante.

The two points to note about this argument are, first, the devil will be in the details (of how unreliable different kinds of state action are likely to be); and, second, that whether the results of state action are likely to be worse than the social status quo ante depends on your position there – unless state action is so utterly devastating that it harms virtually everybody. (Obviously this last, rather strong, conclusion is also in need of support.)

III. Conclusion

Invocations of pseudo-Hayekian knowledge problems aspire to provide an uncontroversial and non-normative argument for a general skepticism about state power. In fact, they have several controversial and normative presuppositions – specifically a preference for the social status quo (or, at least, non-coercive social change only), skepticism about expertise, and anxiety about state power. Of course, on the other side of the coin rejections of pseudo-Hayekian knowledge problems also presuppose controversial and normative presuppositions – a preference for social change (even by coercive means), enthusiasm for experts, and (comparative) complacency about state power.

In each of the temperaments of those who endorse and those who reject knowledge problems is thus a recognizable caricature: the libertarian (caricatured by the lefty) as a defender of privilege, non-paternalistic, anti-elitist and paranoid of the state; the lefty (caricatured by the libertarian) as a paternalistic, elitist do-gooder with a willingness to resort to authoritarian measures. It all suggests a conception of politics as a field of dissensus, not consensus.

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